What is the term for a company that relies on a variety of supplier relationships?

6.6 Supplier relationship management

In today's accelerating world economy, manufacturing companies are faced with the market realities of ever more demanding customers, shrinking product life cycles and steep price erosion. The drive to continually cut costs and focus on core competencies has driven many to outsource some or all of their production. With increasing reliance on outsourcing and strategic procurement, managing close relationships with the large supply base on a real-time basis becomes crucial.

Supplier relationship management (SRM) focuses on maximizing the value of a manufacturer's supply base by providing an integrated and holistic set of management tools focused on the interaction of manufacturer with its suppliers.

6.6.1 Competitive advantage

The SRM becomes an important technology investment as companies recognize the value of managing their supply base as a competitive weapon (refer Figure 6.13).

Figure 6.13. Enterprise applications architecture

The SRM solutions provide competitive advantage in three important areas:

1.

Dramatic cost savings. The SRM drives cost reductions by enabling streamlined business processes and improved information flow.

2.

Tighter replenishment execution, reduction of excess and scrap inventory, elimination of non-value-added tasks and leveraging scale with strategic suppliers provides substantial savings to the manufacturers.

3.

Increased flexibility and responsiveness to customer requirements. Visibility, communication and collaborative planning with suppliers give flexibility and responsiveness.

Faster cycle times are achieved by collapsing the latency of information flow through faster communication, automated replenishment and streamlined process management to ensure real-time information for buyers and suppliers.

6.6.2 Mechanisms

Supplier relationship management contributes to competitive advantage through three primary mechanisms:

Improved business processes across the supply chain

The SRM focuses on cross-functional and inter-enterprise processes and participates in these processes. It provides seamless integration between these processes and non-SRM processes. A well-designed SRM system has the ability to improve business processes in the following areas: strategic supply management, supply-chain collaboration and procurement execution.

The relationship between these three is critical as they form the foundation of strong supplier relationships (refer Figure 6.14).

Figure 6.14. Integrated business processes enhance SRM

Strategic supply management

Aligning supply management goals with the manufacture's business goals. The benefits include an efficient, consolidated supply base, stronger company-wide business relationships and contracts.

Supply chain collaboration

Provides efficient exchange of planning information between trading partners, which ensures optimized flow of parts and materials into plants.

The types of exchanged information includes material plans, inventory availability, performance scorecards, etc. The main benefits are increased customer responsiveness and reduced inventory costs.

Procurement execution

Focuses on tactical manufacturing execution and ensures the most efficient and cost-effective delivery of parts and materials into the plant. The benefits are reduced cycle times, lower shortages and minimum expediting.

Empowering inter-enterprise workflow

SRM takes a role-based business process-centric approach to ensure streamlined business processes between manufacturers and suppliers. The benefits are:

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Ability to rapidly adapt business processes

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Information supports efficient decisions within the business process.

Abstracting the ERP system

SRM system abstracts the ERP system, leveraging its capabilities, while hiding its details from the user who is instead provided a highly tuned role-based process information-set aimed at efficiently supporting the user's business objectives (refer Figure 6.15).

Figure 6.15. Process management

6.6.3 Next generation architecture

New generation Internet-based solution architectures is deployed on top of existing manufacturing systems (refer Figure 6.16). It supports business processes between manufacturers and suppliers, leveraging existing ERP systems.

Figure 6.16. SRM architecture

The Internet makes real-time interaction possible and these SRM architectures include:

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A many to many data model

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A process-focused workflow

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Strong transaction integration

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Rich role support.

6.2.2 Global Production and Operation Network

Both Siemens and Huawei have fully integrated their manufacturing and supply chain networks into their value-creating networks, created a supplier management model that brings high earnings, paid close attention to overall risk management and sustainability of supply chains, developed green supply chains, and achieved global production and operation featuring fast response, high quality, low cost, and flexibility. Due to industry differences, Siemens considers independent production an important element and enhances productivity and value added by adopting the Siemens Production System (SPS) based on lean manufacturing principle and the systematic approach Global Manufacturing Footprint (GMF). Huawei, however, outsources more of its production activities and adopts integrated supply chain management to run production, procurement, logistics, and other functions in the global production and operation network and combines the global manufacturing network and global supply chain network as one.

Siemens attaches great importance to global balance in supply chain and manufacturing networks. About one-third of its purchasing is in Germany, about one-third in other parts of Europe, about one-fifth in Americas, and around one-tenth in Asia-Pacific. The linkages between purchasing and sales in Europe and Americas are also balanced. Siemens is seeking to increase the share of purchasing from emerging markets through the GVS program. It operates more than 285 major manufacturing and production sites in over 40 countries, about a half of which are in Europe, one-fourth in Americas, and one-fourth in Asia-Pacific, so its global manufacturing operations are quite balanced. Only about 8% of Huawei’s employees are in the manufacturing and supply chain sector; most of its production activities are outsourced and organized at home, with only a small number of manufacturing plants in other countries such as Egypt, Russia, Brazil, Saudi Arabia, Iran, and India. Very small proportions of Huawei’s assets and employees are in foreign countries, which can largely account for the fact that its TNI is far lower than that of Siemens.

4.2.2.3.1 Supplier Management Process

At Siemens, supply chain management is an integrated system based on which the company collaborates with suppliers and achieves sustained value chain improvement. Supplier management process includes supplier selection and qualification recognition, supplier strategy and forward procurement list, procurement decision-making, supplier assessment and classification, and supplier development and elimination (Fig. 4.13). Supplier assessment is compulsory company-wide and comprises performance, strategic, and risk assessment. According to the assessment results, suppliers are classified into four types, namely Preferred, Advanced, Approved, and Substandard. Siemens provides company-level rewards for suppliers with excellent performance in breakthroughs and innovations, global strategic procurement, sustainability, and best overall. Rewards may also be provided for suppliers in a particular business unit of a Sector or a particular field of materials.

KM Helps to Improve a Library's Overall Performance and Future Prospects

KM helps to improve a library's overall performance and future prospects as indicated by 46.6% of respondents. There is a strong view expressed within the LIS literature that libraries are in danger of being left behind in competition with other information suppliers and KM has been seen as a survival factor for libraries, helping them to respond to the challenges librarians face in a continuously changing environment (Porumbeanu, 2010; Sarrafzadeh et al., 2010). Other major challenges for academic librarians, as observed, are: the downward trends in library support; erosion of acquisitions and operating budgets; an increase in user service demands; outdated management and organizational structure; and new technological developments (Wen, 2005). To deal with these issues, librarians are required to adopt new managerial processes that can adequately overcome these challenges and help academic libraries to survive by increasing efficiency and improving the quality of information products and user services (Shanhong, 2000; Teng and Hawamdeh, 2002). By capturing and utilizing knowledge, libraries can achieve a multitude of benefits, including savings in research and development costs, reduce duplication of work, transfer of best practices, increase employees' capabilities, and enhance employee satisfaction. This will ultimately improve the library's overall performance and future prospects.

Partnerships and Resources

Following this criterion, excellence is found in the transparent planning and management of external partnerships, suppliers and internal resources. The processes management must be effective and efficient. Social responsibility reflects the social and environmental impact and the accountability of the use of public resources.

Suppliers’ management contributes to obtaining a sustainable benefit for the organisation in terms of economy, relationships and cooperation links with other institutions (subcriterion a). The same happens with the sustainable management of economic resources (subcriterion b), the infrastructure, that is to say, buildings, equipment, materials and natural resources (subcriterion c) and technology (subcriterion d). Similarly it is taken into account the management of information and knowledge in the organisation (subcriterion e) for counting on precise information in the decisions making, transforming data into information and knowledge for being shared, access to information for everyone and learning networks management.

As an assessment example, we could wonder whether partnerships and agreements are established with the suppliers. The modes of behaviour are related to its identification, building a trust network in the relationships, or learning from the best partnerships and suppliers. The scoring increases if there exists a systematic process of suppliers’ management, if a trust relationship is built or if the good practices set an example for other organisations.

On the other hand, if what we want is to know whether the consumption of raw material and energy is optimised and waste reduced and recycled, as a mode of behaviour, there should exist a policy of waste minimisation, reduction of the nonrenewable resources consumption and decreasing of the energy’s cost; and developing a culture of environmental sustainability for the whole organisation. The scoring ranges from the existence of isolated actions to the existence of an environmental management strategy, the systematic process for implementing it or setting an example for other organisations.

The libraries and other information services that want to reach the excellence, incorporate these issues as objectives, processes or concrete actions in a Strategic Plan; create a Partnerships Plan; establish a relationship with suppliers that behave with sustainable criteria; create the budget with sustainable criteria using cost-benefit indicators; adapt and manage the buildings and spaces with sustainability criteria; create an Environmental Management Plan; use sustainable technologies; manage with the criteria from the e-administration; develop tools for the knowledge management; make the information accessible online through the intranet and on the institutional website and respect the intellectual property and data privacy.

II.G. Supplier Relationship and Performance Evaluation Strategy

Quality management emphasizes internal and external cooperation. Internal cooperation manifests in close collaborations among various levels, units, and individuals in non-competitive and mutually beneficial forms, such as quality teams, and supervisors as facilitators. External cooperation manifests mainly through cooperation between a firm and its suppliers. Recent approaches to purchasing, such as just-in-time (JIT) and zero-inventory, are based on this type of collaboration. Supplier relationship and supplier performance evaluation are critical in developing a supplier strategy.

Ongoing monitoring of the impacts of the ERP system implementation

So far as monitoring the impacts of the ERP systems was concerned, an informal process appeared to be in place that was reactive in nature, rather than proactive. That is, where problems surfaced, steps were taken to address them, but in few of the case study organisations was there any evidence that anyone was formally looking at the implementation and assessing the nature of the impact it was having on the people who were using it, or on the businesses processes.

The lack of continuous monitoring of the ERP system use we detected is short-sighted. It is well-known that technology must be used effectively if it is to positively impact individuals or processes. Further, the more IT is used, the more likely users will perceive that IT has an impact (either positive of negative) on their work. Such impacts might relate to task productivity, task innovation, management control, customer satisfaction, supplier management, etc. (Doll et al., 2003). By looking at how an implementation has impacted users, organisations can enhance their understanding of how their staff are reacting to it and can assess how they may react in the longer term to its use.

In the organisations we studied, managers are noticing the reactions of management accountants and other users to the ERP system. They are aware of what has worked and what has not, and of the impact that the implementation has had upon morale and working practices amongst the management accountants. However, little appears to be being done to bring less enthusiastic management accountants into line. They are being given the freedom to either leave the organisation (as was reported in some of the cases) or to do their jobs as they see best. In the more successful implementations, some management accountants are responding to this freedom by simply using the ERP system as a straight replacement for the previous legacy system: they use it to retrieve data which they import into other software and then produce the reports their customers want.

The organisations where this is happening are losing benefit that they could so easily gain if they were to implement effective education and support systems for the management accountants. Some, instead, are relying on natural wastage to remove the resistant management accountants, and have been successful in doing so. However, where the problem is significant, this is insufficient. All the organisations we studied need to put in place more effective education, training and support practices for the users of their ERP implementations. Until they do, even the best implementing organisations will gain less from the shift to ERP than they could. Models exist for identifying issues of this type that need to be addressed (see Doll et al., 2003) but, our interviewees all had a very clear idea of what was misaligned and had little need of models in pinpointing the issue.

Source—Acquisitions and Licensing

“Source” also refers to procurement and purchasing. In the context of collection services, it probably can be easily translated into acquisitions and licensing activities; however, the SCM defines “Source” a little broader than what libraries may consider the concept and its included activities.

Based on APICS, “Source” describes how to manage inventory, the supplier network, vendor agreements, and supplier performance. It discusses how to handle vendor payments and when to receive, verify, and transfer products. Source involves all the infrastructure, processes, systems, and evaluation mechanisms to acquire necessary materials to meet planned demands. SCM supplier network and provider agreement are equivalent to the meanings of the vendor relationship and purchasing/licensing agreements in libraries, although, sourcing is more than what the Technical Services department manages in three perspectives described below.

Collection inventory, including backlogs and newly acquired and incoming collections, is part of the Technical Services purview; however, once the inventory is moved to the shelves, digital stores, or warehousing facility, inventory management responsibility transitions to the Public Services. The problem here is two-fold. First of all, the ownership of the inventory is not clearly defined in libraries; and secondly, the collection inventory is not a widely accepted concept in libraries. Lacking a precise ownership model often creates siloed and segmented planning between Technical Services and Public Services. Without an owner, infrastructure, processes, and systems become fragmented; human and financial resources are less effectively applied. What does collection inventory mean? When does it start and end? Does it begin when items show up at the loading dock and conclude with items being positioned on the shelves? In short, libraries do not consider their collections as inventory. In SCM, inventory covers parts and final products alike before products are shipped to users.

Supplier performance is even more novice of a notion to the library world. The library market is mature and highly relationship based. Therefore, the culture does not call for performance-based relationships. Kress and Wisner (2012) provided a way to measure vendor performances in product costs, their willingness to negotiate, reliability, responsiveness, and transparency; yet, there is little evidence from the literature that performance-based vendor relationship is widely adopted. SCM is about end-to-end integration with suppliers and customers. Suppliers are strategic partners to serve customers. Libraries should not measure performance solely on price and should not let vendors bear all the market risks. With that said, if vendors do not meet libraries or their patrons’ expectations, vendors are not being great partners and put libraries and their patrons in inopportune situations as well. The true partnership involves a sophisticated selection process, through which library vendors and libraries establish long-term associations. This long-term cooperation builds a strategic relationship to align infrastructure, systems, and processes to maximize the benefits of the supplier, the library, and, ultimately, the end users. Sourcing will be elaborated on in more detail in Chapter 7.

The marketing team

Marketing is about successful brand-building for a product or service and so generating the conditions for sale. Marketing can be done on a variety of scales. At one end of the scale, an account manager working with a client should always be on the lookout for opportunities to market new products and new services to that particular client. At the other end of the scale lies mass marketing, where the marketers seek to build brands that address specific consumer wants. For knowledge management purposes, we will focus on mass marketing in this section and refer you to the Ordnance Survey case study in Chapter 10 for a discussion of the role of the account manager in the marketing/sales pipeline.

Mass product marketing is a team task, delivered through marketing projects and campaigns. As in a bid, a marketing project has a beginning, a middle and an end, and often in a global organisation multiple marketing projects are going on all over the world, marketing the same or similar brands across multiple markets. Marketing is fertile ground for the creation of communities of practice, and marketing communities are seen in many organisations, such as Siemens, Coca-Cola, BP, Unilever and Mars (Chapter 9).

A marketing team needs the following knowledge:

Knowledge of the marketing process – They have to know how marketing works and how the marketing process and the marketing cycle are applied within their particular organisation. This is often codified centrally within the organisation; for example, SABMiller have codified their marketing approach in their ‘Marketing Way’,which they describe as ‘a toolkit for helping businesses to “own the growth” by sharpening their skills in analysing and segmenting their markets, identifying the profitable opportunities and deciding where and how to concentrate their efforts’.1

Knowledge of the market – They need to understand the characteristics of the particular market, including the number of consumers – current and potential; the types of consumer (consumer segmentation); the trends in market size in terms of value and volume; the market share of each major competitor and brand (including their own); the market segments (premium, mid-price, economy); the routes to market, and the regulatory framework (where applicable).

Knowledge of how to market to a particular segment – They need to know what strategy and approach to take to improve the standing of their brand in the market. For example, do they invest in trade marketing, TV advertisements, print advertisements, promotions such as ‘buy one, get one free’ or online marketing? This knowledge can easily be shared between different markets around the world through the marketing community of practice.

Knowledge of agencies – Much of the market research and the creation of marketing materials are done through agencies. The marketing teams need to know how to choose an agency and how best to manage the interaction between the marketing team and the agency. This knowledge comes through experience.

Knowledge of the product or service – Marketing needs a good understanding of the product and its unique selling points. With technical products, this understanding has to come from the product development department and generally they will document details of the product, to be stored in the product database.

Knowledge of how the consumer perceives the product or service – Marketing needs to understand whether or not consumers like their product and why. Marketing needs feedback from the consumers, either through market research, from sales, from technical support, from their consumer hotline or from consumer forums and consumer communities.

Knowledge of specific activities, such as product launch – Product launch is a major milestone in the life of a new product, which can have a significant positive or negative impact on product sales, depending on how well it has been planned and executed. It’ s therefore essential to develop knowledge in the team of how to do this. This knowledge will come from lessons from previous product launches and analysis of lessons from previous product launches. The starting point of these lessons will be the careful tracking and analysis of sales after product launch.

A knowledge management framework for marketing teams will therefore contain the following elements:

VI. Future Developments of CAM

What is next for CAM? Daratech in Cambridge, MA, predicts that worldwide spending for CAM software and services will reach $6.6 billion in 2000, a 16.4% growth from 1999. Computers will continue to advance along their current trend making CAM systems more powerful, affordable, and accessible. Integration and intelligence will be the driving forces behind the next generation CAM systems.

“Open” system architecture will enable full data integration across multiple computer platforms without the need for integrated CAD/CAM software. The gap between design and manufacturing will be bridged. Integration downstream will bring about CAM/NC systems that are feature-based in which both topological characteristics and parametric information of a part design are provided. Users will be able to define and use both design and manufacturing features for both part modeling and machining.

Another form of integration called “virtual factory” will lead a dramatic shift in the environment in which CAM systems operate. According to Upton and McAfee, a virtual factory is: “a community of factories each focused on what it does best, all linked by a network that would enable them to operate as one, flexibly and inexpensively, regardless of their location.”

The emergence of these “virtual” factories built on a network of business relationships will radically change the way products are manufactured. Companies with different CAD systems, team members from engineering, marketing and management, suppliers, and others can collaborate electronically on viewing, discussing, changing, and documenting a design of a product. Bilateral electronic linkages will be the means for a company to connect with its suppliers and customers. Manufacturers will rely on the Internet to improve their supply-chain efficiency. Companies with different computer systems can exchange information about inventory levels and delivery schedules easily. Using the Internet to collaborate with partners, transmit orders, invoices, payments, or procurement requests will be a common practice. On the customers' front, help desks and other forms of customer service such as order-entry, invoices and/or payments, and relationship management will be handled electronically. The Internet will also be seen as the natural medium for new product development and business forecasting with customers and/or suppliers.

A number of companies such as McDonnell Douglas and Dell Computer are already operating in a virtual manufacturing environment. McDonnell Douglas has built a highly effective virtual factory since mid-1993 linking several thousand suppliers, partners, and customers. This arrangement allows McDonnell Douglas to build prototypes of complex new parts rapidly. It also helps McDonnell Douglas finding the best suppliers quickly through an electronic bidding system. Manufacturing schedules are coordinated so that warnings of time overruns can be issued early when subcontractors are behind on their subassemblies. McDonnell Douglas' virtual factory has made it possible for both long- and short-term partners to collaborate easily, securely, cheaply, and conveniently. Dell Computer has successfully used the Internet to take customer orders on-line and then orchestrated production tailored to each customer's specification, thus, generating an impressive 160% return on invested capital in 1999. Dell viewed one of the changes that was brought about by the Internet as the dramatic reduction in cost of connections and linkages. The near zero cost to communicate with suppliers and customers allows a company to scale quickly, become more flexible, and manage supplier networks and customer relations in a more dynamic fashion. A company can focus on what it does best.

In order to support a virtual manufacturing environment, future CAM systems need to be Internet “ready,” focusing on collaborative and communicative functions. For example, the Boeing 777 jet was developed using virtual prototyping involving only electronic instead of physical models. On another plane, a virtual reality system called Virtuosi was developed by a group of researchers at the University of Nottingham to customize clothing design. The system provided a 3-D viewing and manipulation of fashion designs over the Web. Clothes so designed were demonstrated by voice-activated mannequins on virtual runways in the system.

Artificial intelligence research will allow the development of smart CNC controls that would machine a part in the most efficient manner automatically. The more “intelligent” CAM systems can optimize NC tool paths, provide knowledge-based machining, and allow the best practices or process expertise be captured and stored in templates as standards for manufacturing. These fully automated and highly integrated CAM systems permit any part design changes to be rippled through all aspects of the manufacturing processes without human intervention.

Another advance in artificial intelligence research on self-evolving robots will have an impact on CAM. A report in the August issue of the journal Nature described how scientists at Brandeis University in Waltham, MA, had successfully created a robotic manufacturing system that designed and built self-evolving and self-generating robot-like machines. Through a self-selection process, the best generations of robot-like machines were created from plastic. The machines were powered by motors and controlled by a neural network on a microchip. Because of the self-evolving nature of these robots, they were essentially designed for free. One of the promises this advancement can bring on CAM is a more economical approach to robotics. The cost of designing and building a robot will be reduced from millions of dollars to just a few thousand dollars. In the future, the use of these inexpensive robots to assemble parts, clean up spills, and perform many other specific tasks in a factory will become a reality.